RESTRICTED
STOCK AGREEMENT
 (Non-Employee
Director)
  THIS
RESTRICTED STOCK AGREEMENT, made and entered into as of the ___ day of
____________, by and between Smart Online, Inc., a Delaware corporation (the
“Company), and _________, a member of the Company’s Board of Directors (the
“Director”).
  WHEREAS,
in consideration of the services of the Director, the Company is desirous of
giving the Director shares of common stock of the Company under the Company’s
2004 Equity Compensation Plan (the “Plan”) (all capitalized terms not otherwise
defined herein shall have the meaning set forth in the Plan), subject to the
restrictions set forth below.
  NOW,
THEREFORE, in consideration of the foregoing, of the mutual promises set forth
below and of other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as
follows:
  1. Restricted Stock
Award. The Company shall issue ________________ (_______) shares of the
common stock of the Company (the “Securities”) to the Director, as part of the
Director’s compensation. The Securities are subject to the restrictions set
forth in Section 4 below.
  2. Director
Representations. The Director hereby acknowledges and represents the
following:
  (a) Compensation. The
Director acknowledges that the Securities are part of his compensation from the
Company.
  (b) Investment. The
Director will treat the Securities as if acquired for investment for the
Director’s own account and not with a view to, or for resale in connection with,
any distribution thereof, and the Director has no present intention of selling
or distributing the Securities. The Director does not have any contract,
undertaking, agreement or arrangement with any person to sell, transfer or grant
participation to such person or to any third person with respect to any of the
Securities other than as set forth in this Agreement. The Director understands
that the Securities to be issued to the Director have not been registered under
the Securities Act of 1933, as amended (the “Act”), by reason of a specific
exemption from the registration provisions of the Act which depends upon, among
other things, the bona fide nature of the investment intent as expressed
herein.
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  (c) Taxes. The Director
has not relied upon the Company with respect to any tax consequences related to
the acquisition or disposition of the Securities. The Director acknowledges that
the Director may incur a substantial tax liability. The Director assumes full
responsibility for all such consequences and the filing of all tax returns and
elections the Director may be required or find desirable to file in connection
therewith. In the event any valuation of the Securities purchased pursuant to
its exercise must be made under federal or state tax laws and such valuation
affects any return or election of the Company, the Director agrees that the
Company may determine such value and that the Director will observe any
determination so made by the Company in all returns and elections filed by the
Director. In the event the Company is required by applicable law to collect any
withholding, payroll or similar taxes by reason of the grant of the Securities,
the Director agrees that the Company may withhold such taxes from any monetary
amounts otherwise payable by the Company to the Director and that, if such
amounts are insufficient to cover the taxes required to be collected by the
Company, the Director will pay to the Company such additional amounts as are
required.
  (d) No Registration
Obligation. The Company will be under no obligation to register the
Securities or to comply with any exemption available for sale of the Securities
by the Director without registration, and the Company is under no obligation to
act in any manner so as to make Rule 144 promulgated under the Act
available with respect to any sale of the Securities by the
Director.
  (e) Underwriter
Restrictions. In the event any underwriter of securities of the Company
requests the Director to sign any agreement restricting resale of the Securities
in connection with any public offering by the Company, the Director agrees to
sign such agreement, provided the officers of the Company have signed an
agreement no less restrictive. The Company may instruct its transfer agent not
to transfer the Securities if requested by an underwriter as described
above.
  (f) Compliance with Securities
Laws. The Director hereby agrees to comply with any plan, policy or other
document of the Company approved by the Board of Directors of the Company to
ensure compliance with securities laws, rules and regulations both prior to the
Termination of Service of the Director and for one (1) year thereafter. The
Company may impose stop transfer restrictions with respect to the Securities to
enforce this provision.
  (g) Legends. Each
certificate representing Securities shall also bear any legend required by any
applicable state securities law or by any other agreement to which the holder
thereof is a party or by which the holder thereof is bound, including the
provisions of any existing “lock-up” or similar agreements between the Director
and the Company, and including the following legend as required in
Section 4, below:
  THE
SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED ASSIGNED, CONVEYED OR
PLEDGED ONLY UPON COMPLIANCE WITH THE TERMS AND CONDITIONS OF A RESTRICTED STOCK
AGREEMENT, AS THE SAME MAY BE AMENDED OR REPLACED FROM TIME TO TIME, A COPY OF
WHICH IS ON FILE WITH, AND AVAILABLE FOR INSPECTION AT THE OFFICES OF THE
SECRETARY OF THE COMPANY.
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  3. Condition to
Issuance. The representations, warranties, understandings,
acknowledgments and agreements in this Agreement are true and accurate as of the
date hereof, shall be true and accurate as of the date of the issuance of the
Securities by the Company and shall survive thereafter.
  4. Restrictions. The
Securities described above shall be subject to the following
restrictions:
  (a) Restriction Period; Lapse of
Restriction. For a period of one (1) year following the date of this
Agreement, the Director agrees not to transfer, assign or sell the Securities,
without the express written consent of the Company, which may be granted or
withheld in the sole discretion of the Company. This restriction shall expire
and cease to be of any effect with respect to the number of shares equal to
twenty-five percent (25%) of the Securities in four (4) equal quarterly
increments for one year following the date hereof, as follows: _________ on each
of ___________, _________________, ______________ and _______________; provided that this
restriction shall lapse with respect to an increment as specified only if the
Director is a member of the Company’s Board of Directors on the specified date
for such increment.
  Shares
representing the Securities shall bear a legend to such effect. The schedule set
forth above is cumulative, so that the Securities as to which the restriction
has lapsed on and after a date indicated by the schedule may be transferred,
assigned, or sold at any subsequent date.
  (b) Acceleration of Lapse of
Restriction. Upon a Change in Control, as defined below, the restriction
set forth in Section 4(a) shall accelerate so as to lapse as to all of the
Securities to which the restriction applies on the date of such
event.
  A “Change in Control”shall be deemed to have
occurred on the earliest of the following dates:
 
 (i)            the
date on which any “person” (as such term is used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended (the “Exchange Act”), other
than: (i) the Company; (ii) a trustee or other fiduciary holding securities
under an employee benefit plan of the Company; (iii) a corporation owned,
directly or indirectly, by the stockholders of the Company in substantially the
same proportions as their ownership of stock of the Company; or (iv) the
existing holders of capital stock of the Company as of the effective date hereof
or their respective affiliates, is or becomes the “beneficial owner” (as defined
in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of
the Company representing more than fifty percent (50%) of the combined voting
power of the Company’s then outstanding securities; or
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 (ii)           on
the condition that the transaction is consummated, the date the shareholders of
the Company approve a definitive agreement or plan for: (A) a merger, share
exchange, consolidation or reorganization involving the Company and any other
corporation or other entity as a result of which securities representing
more  than fifty percent (50%) of the combined voting power of the
Company or of the surviving or resulting corporation or entity  are
held in the aggregate by persons different than the persons holding those
securities (including their affiliates) immediately prior to such transaction;
or (B) an agreement for the sale or disposition by the Company of all or
substantially all of the Company’s assets.
  5. Effect of Termination of
Service. The restriction on the Securities shall lapse as specified in
Section 4 above until the Termination of Service of the Director for
reasons other than death, Disability or Retirement. Pursuant to Section 7.6
of the Plan, where the Termination of Service is for death, Disability or
Retirement, than the Committee shall determine, in its sole discretion, whether
to waive any remaining restriction. All shares of the Securities still subject
to the restriction set forth in Section 4 shall be forfeited by the
Director and reacquired by the Company on such date. Upon such date, the
Director shall have no further rights to any Securities to which the restriction
has not lapsed.
  6. Rights as
Stockholder. The Director shall have all rights as a stockholder with
respect to the Securities; provided, however, any
dividends or distributions on the Securities shall be automatically deferred and
reinvested as restricted Securities subject to the same restrictions set forth
in this Agreement.
  7. Incorporation of the
Plan. The terms and conditions included in the Plan, the receipt of a
copy of which Participant hereby acknowledges by execution of this Agreement,
are incorporated by reference herein, and to the extent that any conflict may
exist between any term or provision of this Agreement and any term or provision
of the Plan, such term or provision of the Plan shall control.
  8. Governing Law. This
Agreement shall be enforced, governed and construed in all respects in
accordance with the laws of the State of Delaware, as such laws are applied by
Delaware courts to agreements entered into and to be performed in Delaware, and
shall be binding upon the Director, the Director’s heirs, estate, legal
representatives, successors and assigns and shall inure to the benefit of the
Company and its successors and assigns.
  9. Miscellaneous. This
Agreement and the Plan constitute the entire agreement among the parties hereto
with respect to the subject matter hereof and supersedes any and all prior or
contemporaneous representations, warranties, agreements and understandings in
connection therewith, other than any existing “lock-up” or similar agreements
between the parties which by their terms would apply to the Securities. This
Agreement may be amended only by a writing executed by all parties hereto. This
Agreement may be executed by facsimile or other electronic signature and in one
or more counterparts.
  [SIGNATURE
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  IN
WITNESS WHEREOF, the parties have executed this Restricted Stock Agreement
effective as of the date first written above.
 
 SMART
      ONLINE, INC.By:Name:Title
 
 [SIGNATURE
PAGE – RESTRICTED STOCK AGREEMENT]
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